|Written by Rob Goldman|
Of course an edition of the Guide would not be complete without our picks for the best sectors in the near term and 2 NYSE-traded stocks that are poised to make big moves higher. In fact, one of these stocks is a clear takeover target that is under significant accumulation---and the fun is just beginning. We are on a bit of a roll with many of our recent listed stock picks and RadioShack (NYSE – RSH) is an example of this reaching a 13% gain after last week’s profile.
Investing is Like Baseball
We can all learn from each other, due to varying experiences and perspectives and this learning process can help shape who we are today and what we aspire to become down the road. Sometimes, we learn about certain topics from the most unlikely of sources. For example, investing and the sport of baseball are eerily similar. No, really. Check it out:
Both baseball and investing are all about statistics whether used by managers to make decisions (baseball and investment) and everyone involved feels free to spout off numbers as if they were gospel (ditto.)
You are an all-time great according to the public at large if you bat .400 or hit lots of home runs. However, if you are just shy of 3,000 hits and you are a steady but unspectacular player you may be overlooked. In the investment world, if you can pick winners half of the time you have fans. That is especially the case if you have huge winners, even if there are big losers as well. The “steady-Eddie” guy in investing is the value investor who gets no respect.
If a baseball player hits a ton of home runs, there are some that believe he is getting illegal help in the form steroids or other PEDs. If you are on a great winning streak with stock picks, you must be trading on inside information.
Past performance is not indicative of future results. (Self-explanatory in both cases.)
When your team is hot, everyone is behind them, when a pundit or fund manager is hot, money is thrown at him. Mediocrity or short term hiccups? Get the hook out, and make it quick.
I could go on and on...What does all of this have to do with anything? I am glad you asked.
Approach and Trends Are Keys to Success
So much of investing and certainly trading are about psychology. The problem is that investors sometimes get confused. For example, most experts (me included) do the public a disservice in how they present investment strategies. On the one hand, some would say that whatever the public was buying you should sell and whatever the public is selling you should buy. Yet, we also suggest that one should follow momentum. So, which one is it?
Of course the correct answer is that there is a time and a place for momentum stocks and a time when one comes to the realization that the retail investor is a negative barometer driven by emotion, much like the sports fan. His ups and downs are tied to his team just like the manic trader or investor. The investor makes impulsive mistakes while the sports fan becomes even more emotionally and financially attached. Things are great when they are working but rotten when they are not.
Approaching investing and sports in a dispassionate manner seems to be counterintuitive and makes no sense. But, it can keep you grounded so you can discern when a stock or industry is in play, or that it is time to sell to the retail guys late to the party. In sports, supporting your team without going overboard, well, good luck with that, but you get the idea.
We mention all of this now because expectations are so high in the stock market that our engagement is bordering on manic. Investors are afraid to sell for fear of losing out on gains while committing a ton of new money because of the recent gains in the market. It’s like the fan who heard about their team’s winning streak and hops on board for fear of missing out on the trend. It usually ends badly for the fan and can end badly for the investor. For example, according to Lipper, in the most recent week tracked (ending last Thursday) inflows into equity funds were the highest since January. While the overwhelming majority went into ETFs (indicating it was likely a lot of institutional money, mutual funds also saw huge gains, not seen since February. It is like déjà vu from earlier this year. Investors witnessed big market gains and plowed in—-and have been rewarded. Will they be again?
Yes they will if they don’t bottom fish, and if they stay away from stocks and sectors not working but find (as we talked about last week) stocks that haven’t really moved too much or are on fire for a short spell. Financials are a strong space, but a lot of tech is bad. Most consumer stocks are attractively priced, and maybe even gold and energy are worth the risk/reward. Health care stocks under accumulation are a solid choice but be wary of their individual stories, lest you lose sight of fundamentals.Our two sub-$5 ugly ducklings had a mixed week. RadioShack (NYSE - RSH) was up as much as 13% for the week while Nokia (NYSE—NOK) was down slightly in sympathy with partner Microsoft (NASDAQ—MSFT) which is really out of favor. Keeping with the financials and consumer themes, it is time to revisit two sub-$5 stocks from earlier this year.
Momentum Is In Your Favor
Earlier this year, we profiled a venerable pharmacy in the midst of a turnaround and a regional bank under fire that is a strong takeover candidate. Both stocks are up since our original profile but frankly, these stocks look better than ever.
With a market cap of $2.6 billion, Synovus Financial Corporation (NYSE – SNV - $3.24) is up 20% since our January profile. Still smarting from the financial crisis and with a lot of TARP money still on its books, this bank is a southeast regional financial services company with $26 billion in assets based in Columbus, Georgia. Synovus’ divisions provide commercial and retail banking, investment, and mortgage services to customers through 30 locally branded divisions, 293 offices, and more than 300 ATMs in Georgia, Alabama, South Carolina, Florida, and Tennessee.
On Friday, SNV reached several inflection points that should take it fundamentally to the $4.00 and even higher on a takeover basis. Frankly, due to its size, standing, approach and business model, SNV is a real target for mid-large size banks. The Company announced that 2Q13 profits nearly doubled, and it raised $180M+ through a secondary offering of 60M shares at $3.09 and closed up! Plus, SNV will pay back nearly $1B in TARP money. All of these things illustrate a “de-risking” of the stock and we expect it to break through the $3.30 year high achieved on Friday. The valuation is just too compelling.
Rite Aid (NYSE—RAD—$3.01) is up 30% since our April profile and while recent quarterly results were not stellar, they were solid. Rite Aid, the nation’s third-largest drugstore chain recorded its first annual profit since 2007, and reported its third straight quarter of profitability, which leads us to believe that this is not a one-time event.
Plus, the stock is in play, rising 10% in the past 2 weeks. IN fact, RAD is only 7% below its 52-week high. Moreover, the valuation is very attractive. The stock trades 20x February FY14E Street EPS estimates of $0.15 and 12x FY15E EPS forecasts of $0.25. We see a 30% increase in the next 6 months as they stock should solidly trade at a multiple of forward 12-month EPS.
Until next week...
Analyst: Robert Goldman
Rob Goldman founded Goldman Small Cap Research (GSCR) in 2009. Rob has over 20 years of investment and research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell-side analyst, he was a senior member of Piper Jaffray's Technology team. Prior to joining Piper, Rob led Josephthal & Co.'s Emerging Growth Research Group. Rob has also served as Chief Investment Officer of two boutique investment management firms, where he managed Small Cap Growth and Balanced portfolios and The Blue and White Fund. As an investment manager, Rob's model portfolio was once ranked the 4th best small cap growth performer in the U.S. by Money Manager Review. In addition to his work at GSCR, Rob is the editor of The Stock Junction (www.TheStockJunction.com.)
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